Federal Reserve Proposes Changes To Volcker Rule

Banks may no longer have to follow something called the Volcker Rule. This was a landmark regulation put in place after the financial crisis to protect banks from themselves. The Federal Reserve has unveiled proposed changes to the rule, which blocks banks from trying to make money with speculative investments. NPR's Chris Arnold reports.

CHRIS ARNOLD, BYLINE: The Volcker Rule basically says that banks can't gamble with risky Wall Street bets because they might make bad bets and collapse. That might sound like a pretty reasonable idea. Some huge financial firms, of course, did that just 10 years ago. They needed bailouts with taxpayer money, and they gave the entire financial system a heart attack.

WAYNE ABERNATHY: Well, that was the way it was sold publicly, that this is a tool to deal with systemic risk.

ARNOLD: Wayne Abernathy is with the American Bankers Association.

ABERNATHY: But when the rules were written, it applied to every single bank. We're talking about small community banks that didn't get involved in any trading. They had to prove under the rule, every day, that they weren't engaging in these kinds of trades.

ARNOLD: So he says some of these proposed changes would fix that. But he says the big banks also are buried in paperwork, having to prove that all the trading they do is on the right side of the law. He says the proposed changes relax some of the requirements for the big banks, too.

ABERNATHY: That means you don't have to show paperwork with every single trade that you're doing.

ARNOLD: Instead, he says, banks would come up with their own systems to make sure that they're square with the Volcker Rule with regulators signing off on their plans. But that sounds too much like banks policing themselves to Marcus Stanley. He's with the watchdog group Americans for Financial Reform. He worries that the changes let banks off the hook too much.

MARCUS STANLEY: This is moving the Volcker Rule much more toward a we'll-take-your-word-for-it kind of rule.

ARNOLD: Stanley says that nobody's had time to fully evaluate all the proposed revisions. But he says these are not just minor tweaks.

STANLEY: This is major surgery on the rule. And most of the surgery here is designed to let banks do more, to give banks more scope for Wall Street trading.

ARNOLD: Federal bank regulators say they want to simplify the rule while still keeping the banking system safe. They're starting a public comment period, and the proposed changes could still be revised.

So what does the man who the rule is named after think about all this? Former Fed Chair Paul Volcker tells NPR that, quote, "you got to keep the core," meaning the core principle that banks should not be allowed to try to make money through risky trading. But, Paul Volcker says, it's his understanding that regulators are keeping that core of his rule intact.